Avalanche Return of the Gold Standard

January 21, 2016

http://gold-standard.procon.org/sourcefiles/goldstandard_austrian_shcool.pdf

Dear Reader, it may be worth your while to dwell for a moment on the following quotation perhaps rereading:

” However, if the credit expansion is continued and, particularly, continued at an increasing rate, an upward price-spiraling competitive race is set in motion between those who period after period receive the additional sums initially and attempt to maintain or draw additional factors of production into the more roundabout processes and those who later in the repeated sequential process experience increases in the 
demand for prices of their products and attempt to retain or redirect resources
back to less roundabout production activities. The process could only
come to an end in one of two ways, Mises argued, either through a
conscious decision on the part of the monetary authorities to halt the
credit expansion or through a complete collapse of the monetary unit in a
hyperinflation. But once the monetary expansion came to an end, an
economic downturn was inevitable. The distortions in the structure of
relative prices, the misdirections of resources among the higher orders of
production and the relative income shares created by “forced savings”
would all be found to be unsustainable with the removal of the monetary
prop that had established and maintained them during the upturn. An
adjustment of relative prices, a reallocation of the factors of production
among alternative uses and a shift in relative income shares would all be
part of the prerequisites for a return to an economic situation consistent
with the underlying pattern of consumer demands and time preference
for present and future goods as they would now show themselves in an
environment free from monetary influences.

Today we live in an era of upward spiralling credit expansion addicted with ever-increasing injections of QE as the rest of the world tries to emulate Japan in its efforts to stave off deflation.

Arguments in favour of QE that it will benefit trickle down stimulus of economic activity have proved to be spurious.

As world leaders meet in Davos global economic activity is at a standstill with predictions for a steep fall from China, eurozone,  Bric countries. World commodity prices are facing collapse hitting poorer countries hardest  with many of their dollar denominated bonds rising in cost as their local currencies threaten collapse.

Worse, stock markets addicted to QE have inflated prices, under threat of only rising with the promise of further QE.

Least whiff of removal of QE and return to non negative interest rates and the stock market robots threaten an avalanche of selling leading potentially to global collapse of stock markets.

http://deohedgefundlaw.com/01132016/index

“The Biggest Bubble in History Just Began to Burst 

The decision by Central Banks to “inflate” the system’s debts away post-2008 has resulted in the misallocation of trillions of Dollars of capital.

The worst offenders were Chinese corporates. China has created the single largest mountain of bad debt in the world. Indeed, things are so out of control in China that 45% of all proceeds from new bond issuance are being used just to pay off interest on old loans.”

Markets are now addicted to QE. Whiff of an interest rate and they collapse. Promise of more printing of money and markets rise.

It’s a Catch 22 and can’t last forever. The present deregulated monetary system has split the global economy right down the middle.

On the one hand we have a refugee crisis, homelessness, deflation, poverty, contracting markets driven by austerity fuelled by falls in commodity prices and the growing burden of financing bailouts.

On the other hand, for the rich, we have booming share values that bear no correspondence anymore to the real world; we have junk bonds fed by junk bond markets fed by Central bankers fuelling this with more and more QE.

QE and the disappearance of private property ownership for the middle class and the poor

https://mises.org/library/mises-audacious-champion-freedom

“In what would normally be his leisure time, for example, he wrote first his world historic article and then his book on Socialism. Just after the establishment of Bolshevism in Russia, he proved that with no private property in the means of production, socialism would be a chaotic and poverty-producing disaster. No planning board could substitute for property and market. Tragically for the world, it took decades before socialists would admit, after his death, “Mises was right.”

With property turned into casino chips fed by vulture investment funds and fanned by mad max Central Bank policy and government socialism for the banks, people are suffering, social services suffering, fewer and fewer ordinary folk can purchase property instead forced to struggle to rent it.

Democracy is suffering.

Central Banks have become the new planning board politburo wielding global national power on edicts determining the future of economies similar to those USSR satellite states of the soviet era.

Capitalism and with it true price discovery led by the market place is replaced by manipulation of the money supply and the bond markets by Central banks replacing market capitalism with socialism for the banks.

https://en.wikipedia.org/wiki/Ludwig_von_Mises

Mises was a defender of freedom and capitalism.

In the 1940s  Mises completed his monumental treatise Human Action, in which he reconstructed all of economic analysis on a sound individualistic foundation.

“Credit expansion cannot increase the supply of real goods. It merely brings about a rearrangement. It diverts capital investment away from the course prescribed by the state of economic wealth and market conditions. It causes production to pursue paths which it would not follow unless the economy were to acquire an increase in material goods. As a result, the upswing lacks a solid base. It is not real prosperity. It is illusory prosperity. It did not develop from an increase in economic wealth. Rather, it arose because the credit expansion created the illusion of such an increase. Sooner or later it must become apparent that this economic situation is built on sand.”

Of course we here in Ireland can testify to the veracity of the above. We had massive credit expansion on joining the euro. It was poured into an unsustainable property boom  not based on an increase in real economic wealth at levels supporting the boom.

Economic activity became addicted to the boom of expanding credit lending and once this supply dried up in 2008, the avalanche of collapse began.

Let me requote Mises above:

” An adjustment of relative prices, a reallocation of the factors of production
among alternative uses and a shift in relative income shares would all be
part of the prerequisites for a return to an economic situation consistent
with the underlying pattern of consumer demands and time preference
for present and future goods as they would now show themselves in an
environment free from monetary influences.”

Global change in our monetary system is required before its defects cause catastrophy to mankind and his future. We require return of a more stable and balanced form of monetary and currency exchange based on the Gold standard.

In Ireland monetary influences choking the economic development of the Irish economy is the perpetuation and maintenance of the property bubble that has collapsed the Irish economy. Commercial and residential property price inflation combined with deflation through austerity are contradictory.

Private property purchase of a mortgage by the lower to middle class is replaced with vulture funds expropriating property funds at knock down prices in turn turning the lower to middle class into serfs paying extortionate Sheriff of Nottingham rents.

This system serves the banks as well as the decreasing number of property owners.

Irish banks are still in spite of bailout dependant on their large lending portfolios and up to €4bn of outstanding loans. Reducing the price of commercial and private property would damage the loan to value ratios of lending on their books.

The construction of affordable housing could bring about negative equity and default and thus Central Bank planning of our economy has replaced a real economy with one that is artificial and false.

It is also in danger of collapse.

NB Fitsch report here:

https://www.fitchratings.com/site/fitch-home/pressrelease?id=998004

“Our assessment of asset weaknesses includes a high proportion of forborne loans in the system, very low yielding loans, defaulted but not impaired loans, and restructured loans, all of which add up to a high proportion of the banks’ balance sheets. It will take many years to work through all these problems, especially because many of them date back a long time. For example, the stock of Irish residential mortgage loans, both owner-occupied and buy-to-let, in arrears for over 720 days is high at EUR15.1bn, equivalent to 12% of outstanding mortgages.

While capital ratios at BOI and AIB strengthened significantly over the past six months, we believe the banks could still be vulnerable to severe shocks. In particular, we are monitoring developments in Ireland’s commercial real estate market (CRE). Irish banks are not expanding aggressively into this type of financing but the market is particularly cyclical and investment levels currently exceed pre-crisis levels. International and domestic investors are driving this expansion but the CRE sector could be vulnerable to changes in investor sentiment and significant expansion in CRE financing at BOI and AIB would therefore increase risks.”

Commercial Real Estate CRE ” International and domestic investors are driving this expansion…”

Yes, its been driven to bubble proportions. The ordinary Joe and Jane Soap cannot afford even a mortgage on a very modest home. And the whole monetary system upon this is based is in imminent danger of collapse.

Price Discovery in a Controlled Economy

Instead of building homes to house the homeless,  providing basic A&E services for the old and sick, Kenny and Burton have acted like bailiffs working for the banks.

They have looted the Irish economy to serve the very banking sector that brought the Irish economy to its knees.

A Celtic Tiger bubble under their watch has been fanned into flames forcing up the numbers of homeless families driven out of their homes by extortionate rent increases.
2012-694--asylum-seekers-punch-and-Judy-show-13rd-November-

Its “showtime” if you are an actor on the stage with a prepared monologue fed to you by your handlers  to focus on the failed efforts of the opposition to manage the economy during the Celtic Tiger years. Instead of acting in the here and now to end the housing and A&E crisis in our hospitals. The failure of FG/LB is by far the greater failure because its one based on the gift of hindsight.

It helps if you cannot think or plan ahead but wish only to maintain the status quo. It also helps if you break election promises. It also helps if you make the same promises to end the calamity of a housing and A&E crisis that you have made before but repeat them for the coming election.

Kenny’s favorite quip of ‘its show time’ is more applicable to a Punch and Judy show with demands for fairness and humane treatment of vulnerable Irish people set aside, in favour of compliant, subservient, capitulation to the demands of failed banker handlers moving the political puppet strings..

We see in the outgoing government evidence of broken promises to reform in Pensions Authority appointment of David Begg; or GSOC using the law to snoop on journalist’s phones and of course the well-known appointment of judges by political affiliation.

Democratic government has been so watered down it hardly exists  replaced with secretive Economic Management Council puppet government control of decision-making by outside financial interests.

In pale contrast to the ideals of 1916, the Oireachtas has become a failed talking shop unable even to produce a watered down Banking Inquiry Report.

There is a generation of young Irish people growing up who are too young to remember the times recalled by older generations when true price discovery existed in the housing market.

There was a time when the purchase of a house could be achieved by getting a mortgage based on a few multiples of a living industrial wage, a steady job.

Price discovery determined that the cost of building a house could yield a profit if reasonably attached to the rubric of what the average Joe and Jane Soap could reasonably be expected to pay off over a 30 year period.

The system was so successful large housing estates were built across the main towns and cities generating jobs in construction with trickle down economic activity that led to thousands of jobs in retail/construction and related industrial growth in a growing economy.

Today following financial collapse and still within an economic downturn with loss of jobs and cuts in wages, the average Joe and Jane Soap see no prospect of owning a home.

Construction has ground to a halt. Shortages mean property prices are out of their reach at astronomical levels.

Banks refuse to lend to developers knowing full well the market is artificial and in a dangerous state of imminent collapse.

Keeping the Property Bubble Going

FG/LB led government has not only failed to address these problems but it has openly capitulated to both a European Central Bank and Irish Central Bank coup d’état of the Irish economy and the Irish construction industry.

The Irish economy no longer serves the people but rather the demands of bondholders and financial paper wielding bailouts of foreign banks and financial institutions.

If the ECB and Irish Central Bank worry that construction levels may impair the current loan to value of billions in lending to developers of buy to let properties and vulture property funds, they will not lend to Irish property developers.

ICB apparently are of more concern that the repayment of foreign bondholders takes precedence over the investment in construction required to serve the needs of the people.

They also know that Irish property prices are vastly inflated with dodgy loan to value ratios and are extremely risky. This puts another dampener on the Irish property sector.

The Irish property sector is in a bubble and all bubbles pop.

The following 2009 discussion on average house property costs figures somewhat dated but if anything matters have severely deteriorated since then.

http://www.thepropertypin.com/viewtopic.php?f=19&t=22730

We have a housing bubble with prices that are unsustainable and inflated due to banks fear of loan to value relationships collapsing.

But collapse they will. All bubbles pop.

Average industrial wage is now a little over €40k and a small development of houses in an enclave not far from here start at €750k typical of such builds in Dublin at the moment targeting high earners paying extortionate rents.

These houses while of good standard are not mansions in their own grounds but yet approach 20 times the average industrial wage!

Don’t be fooled and misled by propaganda from Davey Stockbrokers and ilk re growth projections for the Irish economy.

Such growth projections are based on expectation of massive stock inflation because of global QE, MNC export earnings increase caused by devaluation of the euro against the dollar, low oil prices that imperil the global economy and loot the third world, deteriorating social services because of austerity, temporary changes to Corporation tax auditing practices mysteriously leading to injection of almost €2bn to the public purse.

Shortages are inflating house prices

http://businessetc.thejournal.ie/average-industrial-wage-828-88-per-week-805225-Feb2013/

Perhaps Davos will usher in a return to a global currency standard based on gold that cannot be manipulated by governments and central banks boom and bust policies. It’s not likely to happen.

The smart money is on things to get worse before they get better.

For prosperity and human development to flourish we need to be free of a global monetary system infected by the mismanagement of TBTF banks and Central Banks and Shadow Banking in junk bond markets.

We need to return to a far more sophisticated and smarter world based on human freedom, enterprise and a currency system linked to the stability and balance given by the Gold Standard.

Notes

Shadow Banking

Japan’s Debt Problem

Debt Crisis 2016 United States of America Explained in a Simplified Way

“Uncle Sam’s Catch 22

14 trillion-dollar debt equal to total GDP for one entire year for US

He can’t raise taxes or cut spending and making the recession worse

Can’t have Federal reserve print more money without causing inflation making it worse.

If one link in the debt chain defaults, the whole lot falls apart. This will usher in a global debt crisis of epic proportions. Start preparing.”

 

End

till again…

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